Transnational Commercial Law

The laws controlling international business transactions have an extensive impact. As markets become gradually globalized, companies of all designs become global. The exchange of human resources, services, and goods across national borders ceased to be the reserve of extensive multinational businesses and intercontinental corporations. International commercial laws can influence any industrial entity with several interactions that go beyond national borders. Transnational commercial law or international commercial law refers to the body of regulations that dictate global sale transactions[1]. Transactions can only qualify to be transnational if they apply to more than one country. After World War II, international trade has developed considerably as more and more entrepreneurs perceive the rising significance of transnational commercial law[2].

International trade plays a major role in world development especially through the incorporation of global markets. Within the international trade context, the term ‘lex mercatoria’ is of significance as it refers to that aspect of transnational commercial law that is undocumented, comprising of conventional commercial law; customary laws of evidence and practice; and universal principles of commercial law. Lex mercatoria embodies commercial law that was followed by merchants throughout Europe during the Middle Ages[3]. This set of laws stressed on contractual autonomy and compliance with the principle of limited liability, while ignoring legal procedures and deciding cases based on morals. A unique aspect was the dependence by traders on a legal system created and managed by them. Under this system of lex mercatoria, trade thrived and states realized large amounts of revenue in the form of taxation[4].

In the transnational commerce context, several elements come into play that makes this kind of business different from the conventional domestic trade that occurs at a lower level. The legal framework of the international commerce comprises the principles applicable to all the matters, either substantive or technical, of the legal process, namely the legitimacy of the legal framework, the constitution, authority and function of the legal system, the establishment of the substantive rules and the fundamentals of the policies. It is understood that this legal framework is only applicable in the event where international entities (states) are engaged in commercial transactions[5]. Several unique structural and operational differences delineate international commerce. These and other minor elements form the essential characteristics of most global commercial regulations.

The set of laws, protocols and norms that govern the operation of states, international organizations and other global commercial bodies are not formulated by the laws in a state nor are they part of the political system. International legal frameworks relate to several states and therefore, no single country or group of countries can declare exclusive authority in defining their legal provisions. Consequently, these tribunals lack the laws for their forums, as they are not governed by a solitary nationwide system of Conflict of Laws. The structure of the business is also subject to several regulations[6].

Sole proprietorship businesses, partnerships and limited companies are expected to comply with the universal and specific laws that relate to their structures. The application of lex mercatoria and other related policies takes places across different platforms: the host country, the home country, regional and global regulations[7]. Home country or domestic regulations are normally formulated by the state and federal agencies. Host country regulations refer to any other regulations apart from those of the home country. Regional regulations are created by a group of states that have convened for a specific purpose. Lastly, international or global relations comprise as public international law and other conventions stipulated by the United Nations[8].

Bottom up Approach in Transnational Commercial Law

For a long time, analysts and contributors towards international law have often concentrated on international law using a top-down approach. These top-down international lawmaking analyses typically focus on a county’s treaty-based pledges or an inter-governmental organization created through a treaty, and report of states that developed international law and compelled it on states who may have been quite secluded, politically and physically, from the whole lawmaking process. Bottom-up lawmaking approaches are not a common strategy for state policymakers[9].

Instead, they are preferred more by public and private practitioners who are prepared to spend a considerable amount of resources in handling the day-to-day running of the technical aspects of international commerce. Based on their real life experiences, practitioners develop, infer and put into effect their regulations. Gradually, these primarily informal rules are entrenched into official legal systems that will eventually grow into law that are authentic and effective as the treaties that normally trigger the top-down course[10]. Essentially, the bottom-up approach towards international lawmaking is a flexible process that generates firm and lawful results.

The Uniform Customs and Practice for Documentary Credits (UCP) refers to a set of transnational regulations that commercial banks universally comply with when conducting their credit procedures. These set of laws are not the creation of policymakers; they are the work of private bank clients who converged under the support of the Commission on Banking Technique and Practice of the International Chamber of Commerce to formulate the regulations and provide practice-based explanations of their implications. While the UCP cannot be considered law in the technical sense, courts in most developed states around the world regularly apply it to settle letter-of-credit conflicts.

Berne Union or the International Union of Credit and Investment Insurers is a nongovernmental organization that is composed of both public and private export credit insurers who coordinate the way its affiliates carry out their business. Based on universal industrial practices, the Berne Union has developed technical regulations that delineate the nature and reach of members’ export credit insurance policies[11]. In due course, official international lawmaking institutions adopted most of the regulations, successfully converting them into conventional hard law[12]. These functional instances of the application of the bottom-up approach are significantly imperative to international legal research as they dispute existing international lawmaking hypothesis and models[13].

Problems with Top-Down Approaches

The policy results and developments created by top-down approaches should be considered as first-class verification of the significance that governments, sponsors and regulatory agencies place on the consequences of providing transparency on vital issues in transnational commercial activities. Undeniably, top-down approaches serve the purpose of liberating the regulation process by creating benchmarks and procedures for implementation. Therefore, top-down initiatives are most efficient when the documents are developed with great transparency[14].

Unfortunately, transnational commercial law has its share of instances in which the formulation of a principle has masked rather than opening the matters. In the U.S., policymakers have noted this phenomenon in the control of MNCs where poor transparency has resulted in unpredictable elucidations[15]. Similarly, the numerous revisions of international document also create a definite level of disorder with respect to international standards. Therefore, policymakers should expect that top-down approaches to decision-making generate problems of comprehension[16].

This flaw can be overlooked during the top-down stage of formulation but it cannot be wished away during the translation stage. However, the threats of this interpretation problem are genuine[17]. A policy for implementing best practices in transnational commerce, no matter how well formulated, will find minimal or no use if it cannot reach the target audience to which it was designed. In the rare event that it does reach these stakeholders, there is a high chance that the message would be to no avail or be misunderstood as it maneuvers through bureaucracy. Until recent times, there was a lot of disorganization in the U.S. concerning the delicately different descriptions of CISG provisions.

Approaching Transnational Commercial Law from the Bottom Up

Essentially, bottom-up international lawmaking is a flexible and impulsive, normative procedure that results in lawful products. The process of custom creation starts with the casual, daily concern and experiences of practitioners who, in struggling with the technical aspects of their profession, look for consistency and synchronization as a means to stabilize and endorse their companies[18]. The associations then convert these practices into unrefined norms, which, in turn, control such procedures. The lawmaking assembly also determines procedural, interpretive, and problem-solving regulations formulated to uphold their elasticity and closeness to definite group behavior[19].

However, at a certain juncture, the traditions break off from the group’s limitations, trickle into official legal systems, and are translated into hard “law[20].” In preceding publications, this “hardening” occurrence is attributed to efficiency, a form of comparative advantage intrinsic in normative endeavors founded on technical understanding and application. However, as this argument also demonstrates, the unofficial lawmaking assembly may also champion for the formal reception or embracing of their traditions as a way of, institutionalizing generalizing, and legitimizing market share[21].

On the contrary, bottom-up approaches commence with the entities most impacted by the crisis and endeavor to come up with a more inductive policy for capacity building. These bottom-up approaches launch precedents and processes that function domestically and when declared as universal solutions, become the foundation of best practices for the rest of the actors. Possibly the best way of differentiating between bottom-up and top-down approaches is that top-down approaches focus greatly on the modus operandi in the establishment of policy while bottom-up approaches concentrate their efforts on the strategy of creating procedures. However, bottom-up approaches also have their own unique challenges[22]. Since it is a case-based approach, there are possibilities of generalization using an inadequate and particular collection of data to a policy framework that is expected to cater to an all-inclusive set of cases. Therefore, the benefit of depth within this approach realized through comprehending the domestic context may be wasted when a policy based on one case is broadly dispersed[23].

The bottom-up approach has two main advantages. One, the bottom-up notion affirms the normative procedure in both public and private practitioners; including those inspired by self-sacrifice and monetary gains who team up with others having similar ideas to distribute experiences and normalize practices toward common goals[24]. The term “practitioner” as applied in the bottom-up legal context, is an intentionally wide term, used freely to illustrate those on the ground, equipped with personal knowledge of their profession, areas of interests, who make up customs based on detailed technicalities instead of the basics of international relations and geopolitics[25]. Secondly, bottom-up international lawmaking combines two interconnected sub processes: a casual process of custom conception, suggestive of the way that rules harden within secretive legal systems; and a hardening practice, whereby such casual norms are entrenched in official legal systems, possibly through the pressure of the informal assembly or because the traditions presented attractive legal answers to universal issues[26].

Promoting Lex Mercatoria

International organizations have emerged das the leaders in championing for the increased use of lex meractoria among international commercial entities. Among these international organizations, the ICC and the United Nations stand out as the leaders in commercial regulation institutions. Most international commercial entities already subscribe to ICC’s INCOTERMS or International Commercial Terms that are extensively applied on a global level in international transactions of goods and services[27]. However, this is not the limit to ICC’s jurisdiction and efforts in creating international commercial norms: one of its most important activities is to develop international model contracts[28].

For instance, ICC has distributed model sales contracts, intermediary contracts, distributorship contracts, and commercial agency contracts to several companies[29]. As these model contracts are applicable in a global context, the ICC was also considerate of the subject of the applicable law within these models. The United Nations has also contributed significantly towards the development and promotion of lex meractoria within the global scene[30]. The United Nations Convention on Contracts for the International Sale of Goods represents one of these efforts that were formulated into a treaty that applies to all aspects of international sales uniformly[31].

Conclusion

Coming up as an alternative approach to law, bottom-up approaches toward lawmaking processes pose an empirical dilemma. The question that arises is whether these bottom-up lawmaking approaches are legitimate courses to creating law. The standardized, association-like groups that promote bottom-up lawmaking approaches are elitist and function undercover[32]. The substantive regulations that they create are not founded on the contractual approval of political figures but rather in the implicit, or inconspicuous, commonalities of real-life practice[33]. These regulations nonetheless progress into laws that often affect those beyond the initial lawmaking circle[34].

Therefore, bottom-up international approaches in lawmaking are usually devoid of the accountability usually stipulated among democratic regulations. One also needs to question whether the lack of democratic contribution makes the final lawless legitimate[35]. Some scholars have responded to this question positively and concentrated on solving the democratic discrepancy through introduction of responsibility-enhancing devices[36]. However, instilling accountability by embracing lucidity and discussions with stakeholders essentially disrupts the close-knit homogenous nature of the lawmaking associations that are the influential think tanks in the bottom-up approach. Some scholars concentrate instead on overriding any democratic shortages through highlighting the effectiveness and power of the resultant law. This later course may end up being principally helpful in legitimizing bottom-up lawmaking provided the lawmakers introduce transparency such that outside parties may in fact scrutinize legal results before they can make efficacy decisions.

References

Berger, Klaus Peter. European Private Law, Lex Mercatoria and Globalization. Towards a European Civil Code. 2004. 43-58.

Berger, Klaus Peter. Transnational Commercial Law in the Age of Globalization. Roma: Centro di studi e ricerche di diritto comparato e straniero, 2001.

Bogdandy, Armin von, and Ingo Venzke. International Judicial Lawmaking On Public Authority and Democratic Legitimation in Global Governance. Berlin: Springer, 2012. <http://dx.doi.org/10.1007/978-3-642-29587-4>.

Bogdandy, Armin von, and Ingo Venzke. On the Democratic Legitimation of International Judicial Lawmaking. International Judicial Lawmaking: on Public Authority and Democratic Legitimation in Global Governance. 2012. 473-509.

Brower, Charles N., and Jeremy K. Sharpe. The Creeping Codification of Transnational Commercial Law: An Arbitrator’s Perspective. Virginia Journal of International Law. 45, no. 1. 2004.199-221.

Cranston, Ross. Theorizing Transnational Commercial Law. Texas International Law Journal. 42, no. 3. 2007. 597-617.

Dalhuisen, J. H. Dalhuisen on Transnational Comparative, Commercial, Financial, and Trade Law. Oxford [England]: Hart Pub, 2010.

Dilling, Olaf, Martin Herberg, and Gerd Winter. Responsible Business: Self-Governance and Law in Transnational Economic Transactions. Oxford: Hart Pub, 2008.

Evans BJ. Inconsistent regulatory protection under the U.S. Common Rule. Camb Q Healthc Ethics.13. 2004. 366–379.

Fazio, Silvia. The Harmonization of International Commercial Law. The Netherlands: Kluwer Law International, 2007

Gessner, Volkmar. Contractual Certainty in International Trade: Empirical Studies and Theoretical Debates on Institutional Support for Global Economic Exchanges. Oxford: Hart Publishing, 2009.

Ginsburg, Tom. International Judicial Lawmaking. Champaign, Ill: University of Illinois, College of Law, 2005.

Goode, Roy Miles, and Goode-Kronke-McKendrick-Wool. Transnational Commercial Law […] Text, Cases, and Materials. Oxford [u.a.]: Oxford Univ. Press, 2007

Goode, Royston Miles, Herbert Kronke, and Ewan McKendrick. Transnational Commercial Law International Instruments and Commentary. Oxford: Oxford University Press, 2012

Gopalan, Sandeep. Transnational Commercial Law: The Way Forward. The American University International Law Review. 18, no. 4. 2003.803-849.

Kleinlein, Thomas. Judicial Lawmaking by Judicial Restraint? The Potential of Balancing in International Economic Law. International Judicial Lawmaking: on Public Authority and Democratic Legitimation in Global Governance. 2012. 251-292

Levit, J. K. A cosmopolitan view of bottom-up transnational lawmaking: the case of export credit insurance. Wayne Law Review. 51, no. 3. 2005. 1193-1208.

Levit, Janet Koven. A Bottom-Up Approach to International Lawmaking: The Tale of Three Trade Finance Instruments. The Yale Journal of International Law. 30, no. 1: 125-209.

Likosky, Michael B. Compound Corporations: The Public Law Foundations of Lex Mercatoria. Non-State Actors and International Law. 3, no. 2/3. 2003. 251-281.

Mark R. Shulman, Op-Ed, Moot Court in Global Language of Trade, N.Y. L.J., Apr. 2, 2007

Parisi, Francesco, and Vincy Fon. The Economics of Lawmaking. Oxford: Oxford University Press, 2009

Prendergast, James. Book Review: Patrick Del Duca, Choosing the Language of Transnational Deals: Practicalities, Policy and Law Reform. Uniform Commercial Code Law Journal. Vol. 43, no. 1. 2010. pp. 583.

Sarkar, Rumu. Transnational Business Law: A Development Law Perspective. The Hague: Kluwer Law International, 2003.

[1] Berger, Klaus Peter. European Private Law, Lex Mercatoria and Globalization. Towards a European Civil Code. 2004. 43-58.

[2] Berger, Klaus Peter. Transnational Commercial Law in the Age of Globalization. Roma: Centro di studi e ricerche di diritto comparato e straniero, 2001.

[3] Berger, Klaus Peter. Transnational Commercial Law in the Age of Globalization. Roma: Centro di studi e ricerche di diritto comparato e straniero, 2001.

[4] Bogdandy, Armin von, and Ingo Venzke. International Judicial Lawmaking On Public Authority and Democratic Legitimation in Global Governance. Berlin: Springer, 2012. <http://dx.doi.org/10.1007/978-3-642-29587-4>.

[5] Sarkar, Rumu. Transnational Business Law: A Development Law Perspective. The Hague: Kluwer Law International, 2003.

[6] Berger, Klaus Peter. op. cit. 123

[7] Prendergast, James. Book Review: Patrick Del Duca, Choosing the Language of Transnational Deals: Practicalities, Policy and Law Reform. Uniform Commercial Code Law Journal. Vol. 43, no. 1. 2010. pp. 583.

[8] Bogdandy, Armin von, and Ingo Venzke. op. cit. 22

[9] Berger, Klaus Peter. op. cit. 17

[10] Parisi, Francesco, and Vincy Fon. The Economics of Lawmaking. Oxford: Oxford University Press, 2009

[11] Bogdandy, Armin von, and Ingo Venzke. op. cit. 27

[12] Bogdandy, Armin von, and Ingo Venzke. op. cit. 31

[13] Berger, Klaus Peter. op. cit. 45

[14] Berger, Klaus Peter. op cit 46

[15] Brower, Charles N., and Jeremy K. Sharpe. op. cit. p 46

[16] Bogdandy, Armin von, and Ingo Venzke. op. cit. 45

[17] Mark R. Shulman, Op-Ed, Moot Court in Global Language of Trade, N.Y. L.J., Apr. 2, 2007

[18] Dilling, Olaf, Martin Herberg, and Gerd Winter. Responsible Business: Self-Governance and Law in Transnational Economic Transactions. Oxford: Hart Pub, 2008.

[19] Brower, Charles N., and Jeremy K. Sharpe. op. cit. p 45

[20] Gessner, Volkmar. Contractual Certainty in International Trade: Empirical Studies and Theoretical Debates on Institutional Support for Global Economic Exchanges. Oxford: Hart Publishing, 2009.

[21] Bogdandy, Armin von, and Ingo Venzke. id. lib. 45

[22] Levit, J. K. A cosmopolitan view of bottom-up transnational lawmaking: the case of export credit insurance. Wayne Law Review. 51, no. 3. 2005. 1193-1208.

[23] Berger, Klaus Peter. op. cit. 167

[24] Fazio, Silvia. The Harmonization of International Commercial Law. The Netherlands: Kluwer Law International, 2007

[25] Dalhuisen, J. H. Dalhuisen on Transnational Comparative, Commercial, Financial, and Trade Law. Oxford [England]: Hart Pub, 2010.

[26] Gopalan, Sandeep. Transnational Commercial Law: The Way Forward. The American University International Law Review. 18, no. 4. 2003.803-849.

[27] Levit, Janet Koven. A Bottom-Up Approach to International Lawmaking: The Tale of Three Trade Finance Instruments. The Yale Journal of International Law. 30, no. 1: 125-209.

[28] Bogdandy, Armin von, and Ingo Venzke. On the Democratic Legitimation of International Judicial Lawmaking. International Judicial Lawmaking: on Public Authority and Democratic Legitimation in Global Governance. 2012. 473-509.

[29] Ginsburg, Tom. International Judicial Lawmaking. Champaign, Ill: University of Illinois, College of Law, 2005.

[30] Goode, Roy Miles, and Goode-Kronke-McKendrick-Wool. Transnational Commercial Law […] Text, Cases, and Materials. Oxford [u.a.]: Oxford Univ. Press, 2007

[31] Brower, Charles N., and Jeremy K. Sharpe. The Creeping Codification of Transnational Commercial Law: An Arbitrator’s Perspective. Virginia Journal of International Law. 45, no. 1. 2004.199-221.

[32] Kleinlein, Thomas. Judicial Lawmaking by Judicial Restraint? The Potential of Balancing in International Economic Law. International Judicial Lawmaking: on Public Authority and Democratic Legitimation in Global Governance. 2012. 251-292

[33] Cranston, Ross. Theorizing Transnational Commercial Law. Texas International Law Journal. 42, no. 3. 2007. 597-617.

[34] Likosky, Michael B. Compound Corporations: The Public Law Foundations of Lex Mercatoria. Non-State Actors and International Law. 3, no. 2/3. 2003. 251-281.

[35] Goode, Royston Miles, Herbert Kronke, and Ewan McKendrick. Transnational Commercial Law International Instruments and Commentary. Oxford: Oxford University Press, 2012

[36] Evans BJ. Inconsistent regulatory protection under the U.S. Common Rule. Camb Q Healthc Ethics.13. 2004. 366–379.